Reports overnight that talks between the Chinese delegation and the US had yielded little to no progress, leaving tariffs to take effect at midnight (albeit with a built-in two-week delay that will give negotiators more time to strike a deal), rocked Chinese equity markets during Friday’s trade.
Notching the worst weekly performance of the year so far, the Shanghai Composite has fallen 4.5% since last Friday. But the carnage could have been much worse. Because as markets spiraled lower earlier in the week, the Communist Party called in the National Team – a coalition of state-backed investment funds – to backstop the market.
The timing of the NT’s interventions is easy to spot by looking at a weekly chart of equity-index performance: On Friday, the intervention was particularly obvious, as the NT swooped in to push stocks back into the green during the latter half of the trading day after reports that the next escalation in US tariffs had formally taken effect crushed hopes for an 11th hour deal.
Ministry of Foreign Affairs Spokesman Geng Shuang later told reporters that there hadn’t been a phone call between Trump and President Xi.
By the close of Asian trading, the Shanghai Composite was up 3.1%, ending the session at the highs. The Shenzen soared 3.8% on the day (though both remained down for the week).
By contrast, Japanese shares, which mirrored moves in Chinese stocks during the first half of the session, continued to weaken and finished the day lower.
Global Times editor Hu Xijin, who has emerged as one of the most visible mouthpieces for the Chinese government during the escalating trade conflict, touted the resilience of Chinese markets on Friday as evidence that “China’s market has largely withstood the initial wave of psychological impact of Trump’s tariff stick.
China stock market closed Fri at 3am US time with SSE index rising 3.1%. Today’s trading spans over time when US’ new tariffs took effect. This shows China’s market has largely withstood the initial wave of psychological impact of Trump’s tariff stick. It’s US market’s turn next.
— Hu Xijin 胡锡进 (@HuXijin_GT) May 10, 2019
He added, with a heavy dose of foreboding, “it’s US market’s turn next.”
As Alt-Market’s Brandon Smith noted earlier, China has propped up markets since December with its revitalized stimulus program, and its willingness to marshal state-backed funds to step in and buy during the few instances when sentiment has deteriorated. This has helped propel Chinese markets to world-beating gains…that is, until this past week.